In 2020, Tk 13,457.8 crore worth of defaulted loans were rescheduled by banks, the lowest overall total since 2015.
In 2019, however, Tk 50,186 crore worth of loans were rescheduled as part of their attempt to clean up their balance sheet during the spike of default loans in the sector. A top official of the central bank has stated that the amount of rescheduled loans contracted in 2020 was because of the central bank’s moratorium facility on loan instalments.
Bangladesh Bank revealed a moratorium facility in March of 2020 and then requested the lenders not to consider business personnel as defaulters if they cannot repay the installments until June 30th of 2020. The facility was then extended twice to December 31st of 2020.
Due to the rescheduling, the size and magnitude of the soured loans seemed small in the fourth quarter of 2020. By the conclusion of December 2020, the total loans amounted to Tk 88,734.1 crore in the sector, down 6 per cent from September, based on the data from the Bangladesh Bank.
Emranul Huq, the managing director of Dhaka Bank, stated that if the loan monetarium facility was not offered by the Bangladesh Bank during the pandemic, a big amount of loans would have soured. To minimise the defaulted loans, the lenders would have to use the instrument.
Huq added that the loan rescheduling might increase in the March quarter as the moratorium facility on the installments of loans had ended in December of 2020.
Loan rescheduling is not a very good practice as it is a short-time measure, said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.
“Such activities help the banks clean the book. But in the long run, it increases the defaulted loans.”
Mansur, who is also the chairman of BRAC Bank, has also stated that the lenders are interested in rescheduling their defaulted loans for the interest of making profits as they have not kept provisioning against the rescheduled loans.
“The banks can declare dividends by regularising their defaulted loans.”
On the other hand, business-people can come out from the default zone by rescheduling their bad loans against only a 2 or 3 per cent down payment.
“Some unethical borrowers take the rescheduled facility again and again and they misuse the facility to take fresh loans,” said Mansur, a former official of the International Monetary Fund.
In 2019, defaulted loans amounting to Tk 50,186 crore were rescheduled, up 117.29 per cent from a year earlier, owing to the relaxed rescheduled policy offered by the central bank.
Along with the existing policy, the central bank on May 16, 2019 issued a special policy on loan rescheduling and one-time exit for defaulters to bring down the high amount of defaulted loans.
Under this special policy, defaulters have the opportunity to regularise their bad loans for 10 year, including a grace period of one year, at a 9 per cent interest rate by making just a 2 per cent down payment.
Defaulters were allowed to regularise their bad loans until February 17 last year under the special policy.